SNC-Lavalin to build $92-million district cooling system in Saudi city of Mecca

CP

MONTREAL - SNC-Lavalin will build a district cooling system in the Saudi city of Mecca, site of an annual Islamic pilgrimage that attracts Muslims from around the world, under a $92-million contract announced Tuesday.

The Montreal-based company, which provides engineering and project management services around the world, said construction is set to begin this quarter under a contract from a subsidiary of Saudi Tabreed District Cooling Co.

District cooling uses a central plant to chill water that is then distributed to several other buildings that use the water to cool themselves before the water is returned to the central plant.

The first phase of the project, a chilled water production plant for the Jebel Omar Development, is planned for December 2013.

"We are delighted with receiving this contract, particularly because it is the third district cooling plant contract awarded to us in Saudi Arabia since May 2010," SNC executive vice-president Charles Chebl said.

"This contract reflects our strategy of bringing the full spectrum of our global expertise to the region, and attests to SNC-Lavalin's world-class leadership in the district cooling sector."

Maxim Sytchev of Alta Corp Capital said the contract is relatively small, representing 2.7 per cent of its infrastructure and environment backlog and one per cent of its overall backlog.

"But it does show that the company's clients continue to award contracts to SNC-Lavalin despite the negative news flow overhang," he wrote in a report.

The ability to win contracts has been a key investor concern since internal problems arose in March.

"We view this contract as an important step in re-establishing investor confidence," he said, point to it as the first international deal of size in months.

Last week, SNC (TSX:SNC) lowered its earnings forecast for 2012 due to higher forecast costs at two fixed-price projects, one in the company's power segment and the other in its hydrocarbons and chemicals segment. Full-year earnings are now expected to be in a range of $325 million to $340 million.

During the quarter ended June 30, SNC earned $32.7 million or 21 cents per share, down from $104.8 million or 67 cents per share a year earlier.

It has been a tough year for SNC-Lavalin, which is grappling with a financial scandal, a labour dispute at its Candu nuclear energy division and a worsening global economic outlook that has put pressure on capital spending plans.

It also faces a class-action lawsuit attempt on behalf of shareholders. Two firms that began suits in May announced on Friday that they've received court permission to combine the claims on behalf of investors who bought SNC shares between Feb. 1, 2007 and Nov. 5, 2009.

The suit, which is seeking class-action status, demands compensation for a decline in SNC's stock price.

On the Toronto Stock Exchange, SNC's shares lost 49 cents at C$37.71 in afternoon trading.